Tobacco Industry Remains Healthy, Analyst Says March 14, 2005
News Summary
Lawsuits, antismoking laws, and the 1998 nationwide tobacco settlement have done relatively little to hurt the fortunes of the U.S. tobacco industry, which still pulls in $70 billion in annual revenues, Forbes reported in its March 28 issue.Morgan Stanley tobacco analyst David Adelman says tobacco stocks are still an attractive long-term investment, even though U.S. consumption has fallen off by about 2 percent a year since 1981. The logic behind his optimism: the remaining hard-core smokers will continue to pay higher prices to feed their addiction, and cigarette smoking is on the rise in developing nations. Higher prices and growing demand overseas will more than offset the problems posed to the industry by falling domestic consumption, according to Adelman.
Adelman has long predicted that the Justice Department's $280-billion RICO lawsuit against the industry would not succeed, and has remained bullish on the industry's long-term prospects. So far, he is right: shares of tobacco firms Altria, Reynolds American, and Carolina Group have risen by 106 percent since 2002.
Adelman predicted that industry profits also will helped by caps on punitive-damages awards and class-action lawsuits, as well as slower growth in excise taxes.
COMMENTS ON THIS ARTICLE: